Written by Christian Müller, Chief Finance Officer at Moss
Making Tax Digital for VAT, or MTD as it is commonly known makes up one element of the Government’s strategy to digitise the tax affairs of individuals and businesses here in the UK. MTD came into formal effect back in 2019, when it became mandatory for all VAT-registered businesses with a taxable turnover above the £85,000 VAT threshold to keep digital records and process their VAT return information through MTD-compatible software.
The aim of MTD is to deliver a modern, trustworthy tax system, simplifying the tax process and supporting the UK in its goal of going digital. Indeed, the expectation is that by signing up for MTD, most businesses will experience long-term benefits, which include reduced errors and time saved in managing their tax affairs, according to the Government.
Things changed earlier this year, however, when MTD requirements were extended to all VAT-registered businesses, including those that fall below the £85,000 threshold. We have just passed the November 1st cut-off, and as you might expect, the scheme now encompasses many previously excluded small businesses – so what will this mean for the future?
MTD continues to provide new opportunities for SMBs
During trial periods, businesses reported experiencing a number of benefits from using MTD-compatible software. There are an array of reasons for this, but the most obvious benefit is rooted in the fact that MTD-compatible software is built from the ground up to help be accurate, and reliable. The whole purpose of the software is to help you get your taxes right the first time – a notoriously difficult task that requires you to have confidence that the data you are reporting is accurate and not subject to time delays. The software exists to tackle one of the most common pain points for businesses and individuals alike; gone are the days of submitting your taxes and worrying for weeks about getting a call from HMRC telling you that something isn’t right! With new taxation software, businesses are getting peace of mind, for half the time investment previously required.
Secondly, having the right software in place to make record-keeping as streamlined a process as possible has a significant consequential impact. By bringing on digital tools to help, organisations can centrally store all their data, which gets rid of the need to switch between different systems. Tasks that were previously done manually can be automated, resulting in significant time saving across the board. When it comes to the day-to-day functioning of businesses – whether it’s a sole trader keeping their own books, or an accountant in charge of tracking transactions on a larger scale, digitising the process makes the whole operation more efficient
However, the largest opportunity created by MTD may not be related to taxes at all. MTD will prove to be a catalyst for growth and internal reforms for many SMBs that were previously hesitant to take the leap towards digital earlier. Many providers of MTD compliant software can help small businesses with a whole lot more than their taxes. Spend management solutions provide businesses with the means of tracking and controlling all company spend. These solutions in particular are significantly improving productivity amongst finance teams by giving them more visibility on business transactions, using data analytics to highlight spending trends, automating month-end reporting, and more. This is useful for complying with MTD requirements since it significantly reduces error by automating previously manual tasks and increasing the integrity of data fed into reports.
Even though this is a government-backed initiative, businesses are thriving from having real-time accounting data, as well as accountants, tax advisors and bookkeepers. It’s incredibly exciting that businesses are now able to make data-driven decisions, in real-time, which in turn helps them run more efficiently, look after customers better, and explore new monetisation opportunities.
Digitising processes can help SMBs to navigate a competitive market
Attitudes of those in the industry have already bought into digitisation, with a recent survey revealing that 57% of accounting professionals predict accountancy will become completely cloud-based or automated within the next few years as the sector embraces greater levels of innovation.
Since MTD is enforcing higher rates of digital transformation in the finance and accounting sectors, and the buy-in is there from professionals in the field, we are seeing more opportunities emerge for competition to grow within the accounting software market. Of course, the power to transform SMBs and ensure their success lies with the decision-makers, who hold the key to selecting the right, tailored, solution for their company. However, to be really effective, what is needed amongst those decision-makers is an acute awareness of their business needs and the various solutions that exist to serve them.
The greater the understanding is amongst those in control of business finances, the easier it is for them to make the right calls, and bring technology on board that either gives them a holistic view of their operations and enables them to make better business decisions or fits easily into their existing portfolio of solutions. Either way, the result should be a significant value-add. Ultimately, buy-in into the right solutions can lead to investment which drives even greater innovation in digital services. In the case of spend management solutions, we are already seeing companies with a need to streamline accounting processes and increase efficiency benefit immensely.
Changes to expect in the coming years
The tech in this area has already been improving rapidly, but this month’s MTD deadline is set to act as a further catalyst, with all newly-established VAT-registered companies entering the market in need of compliant software to support their business journeys.
Digital spend management tools are already delivering on invoice management, reimbursements, cash flow insights, and automated accounting to help businesses streamline their internal operations and focus on their growth strategies – all in addition to helping them comply with MTD requirements. In the coming years, we can expect to see those that have already invested not only benefit from having more accurate data and an easier taxation process but from time and cost savings too, as well as more agile and reliable financial operations more broadly. All this is being delivered as a by-product of the nudge towards digitisation provided by the MTD decision and will result in far greater investment into the sector in the coming years.
The power of spend management not only serves existing businesses, of course, but new businesses entering the market, too. The great advantage for new organisations is that they are witnessing tried-and-tested spend management solutions reduce the margin of error in accounting, making the decision to invest themselves far easier. This critical juncture for taxation and accounting is steering us towards a more innovative future for the industry that will see SMBs keep pace with their larger competitors and create a competitive market where the ‘best tech wins’ – regardless of company size and stature.